Corn production declines, ethanol debate intensifies
WASHINGTON – As the Midwest drought continues to damage corn crop conditions and limit the amount of corn available for food consumption, the debate over whether Congress should reduce ethanol mandates may very well become a top issue when Congress returns from recess in September, said commodities expert John Barone.
The US corn crop, a key component of the US food supply and integral commodity for the foodservice industry, is "an official disaster," said Barone, CEO of Fairfield, N.J.-based Market Vision Inc.
Last week the US Department of Agriculture confirmed that corn yields decreased to 123.4 bushels per acre from pre-drought levels of 166 bushels per acre, and with production cuts of 2.2 billion bushels, "the situation is even worse than everyone thought," he added.
There has been a significant decline in corn production that will negatively impact the food supply and foodservice businesses, he continued. As the drought of 2012 continues taking its toll, Barone said approximately 42 percent of the crop has been deemed for ethanol production. This quota would fulfill the renewable fuel standards the federal government has set, he said.
Approximately 4.5 million of a total of 10.8 million bushels of corn is expected to be used for ethanol production this year, according to Barone.
The potential debate in Congress could focus on why so much of the crop would go toward ethanol production when the shortage is jeopardizing the food supply, Barone said.
"The big issue at this point is whether Congress will do anything about the situation," he added. "We have ethanol mandates in place and it is written into law that Congress can reduce those mandates during a crisis. This year's corn crop really qualifies as a crisis."
In its agricultural weather and drought update on Aug. 14, the USDA, rated the condition of 51 percent of the corn crop as poor to very poor.
The National Restaurant Association last year supported Congress' repeal of subsidies on corn-based ethanol, saying the tax credits distorted the market and diverted resources away from the food supply, which affects food prices.
According to the NRA, food costs represent about 33 cents of every dollar in restaurant sales.